I was wondering recently, "why is deflation setting in exactly with the massive amounts of money getting printed and dumped into the market". I got my answer, which hit my like a Homer Simpson, "doh!"
The money is NOT getting to the market.
One great explanation, with a few good comments is over at the Financial Ninja. The fact is, nobody is requesting debt increases via loans and otherwise right now, and the banks to top that off aren't loaning haphazardly like they have been for the last 30 years to the people that are trying to get money. All other criteria not being as important as these two simple facts. Money gets into the market via the banks via the Federal Reserve, to put it crudely. But if the money isn't leaving those banks, it will stave off inflation for however long they hold on to that currency. The problem lies in when they start releasing those funds.
Since we operate on a fractional banking system the banks have no limit of liquidity that they must maintain and as such, when it leaves the banks and becomes fiat capitol in which to blow on whatever investment we're right back where we were the last 5 years. Mythical growth based on overblown investment done with money that doesn't exist, only to blow up bigger and bigger each time. How many times can we repeat this cycle with our fancy Federal Reserve System? My guess is probably just as good as anyone's, but it sure doesn't look like it will end soon.
We're lining up to have the same policies of fractional banking with the Federal Government in charge of market manipulation and booms and busts. Obama really is no hope, as he hasn't mentioned fixing the monetary system at all, and he's put the same people that have perpetuated it over the years into key positions. I really doubt at this point I'll see honest money in my lifetime, instead I'm more likely to see armed revolt and revolution. I'd take a lot of things over that, but we get the hand we're dealt, and at that point it is up to us to make the best of things as we may.
At least for now, the banks have managed to, on purpose or by mere accident or fear, stave off runaway inflation. 2009 is about to roll in the door and we'll surely see the results of the runaway monetary printing presses. One of these days, I sure hope I get motivated not to think about all of this market mess again, and can once again ignore and instead focus on more productive things, like career, life, and existence on a human level.